Market parties with an interest in the Dutch non- and sub-performing loan market and their advisors have been awaiting the Dutch Supreme Court judgement in the latest episode of the Cerberus Van Lanschot saga for some time now. The questions put before the Dutch Supreme Court concerning the transferability of bank’s claims to non-banks and the duties of care imposed on sellers and buyers of such receivables are of interest to sellers and buyers of non- and sub-performing bank loans alike.
In the meantime, the conclusions of the Attorney General advising the Supreme Court in this matter have been published. Although the Supreme Court does not have to follow the Attorney General’s conclusions, these are often a good indication of what is to come. For Dutch banks, the Dutch Supreme Court judgement will also be a relevant factor in considering the feasibility and terms of possible further NPL loan or loan portfolio sales as one of the options when dealing with non- and sub-performing loans on their balance sheets. If indeed a recession will further materialise as a result of the Corona pandemic, this may become all the more relevant.
The proceedings revolve around the loan portfolio sale by F. Van Lanschot Bankiers N.V. (Van Lanschot bank) to a Cerberus investment vehicle, Promontoria Holding 107 B.V. (Promontoria) and several borrowers of loans included in this portfolio resisting collection and enforcement measures subsequently taken by Promontoria. The preliminary questions submitted to the Dutch Supreme Court in the wake of one such dispute and the replies to these questions now offered by the Attorney General in this matter are briefly summarized below.
Preliminary question 1
Does the nature of a bank's claim against a borrower mean that it is non-assignable within the meaning of section 3:83 (1) of Book 3 of the Dutch Civil Code (DCC) if the intention is to assign that claim to a non-bank?
Answer: Much to the relief of the Dutch bankers' community, the Attorney General answered this question in the negative. Under Dutch law rights and receivables are, as a main rule, assignable unless agreed otherwise. This might be different if the nature of the relevant claim is such that it must be held to be non- assignable (e.g. because it can be held to be personal or linked to the assignor acting in a certain capacity such as that of a government institution). According to the Attorney General this is not the case where loan receivables are being assigned by a bank to a non-bank loan purchaser/lender. In considering this question the Attorney General notes that the duties of care of a non-bank lender lending under Dutch law are not necessarily that different from those of a Dutch bank (see further below). The Attorney General also refers to the proposed European directive on credit servicers, credit purchasers and the recovery of collateral COM/2018/0135 final - 2018/063 (COD). The purpose of this European directive is to remove obstacles to the assignment of loans to non-credit institutions whilst at the same time protecting the rights of consumers. According to this European directive, in principle the assignability of credit claims to non-bank entities is not only to be considered as a general possibility, but is also considered as desirable to allow banks to stay financially healthy and maintain financial stability.
Preliminary question 2
Does a non-bank to which the claim is assigned owe a duty of care towards a borrower of the assigned claim? If so, how does that duty of care relate to (differ from) the duty of care applicable to a bank under Dutch financial regulatory laws and the general civil law duty of care that is imposed on a bank (as further developed in Dutch caselaw on the basis of the Dutch law concept of reasonableness and fairness)?
Answer: According to the Attorney General, similar to a bank, a non-bank to which a claim is assigned does have a public law duty of care where the relevant claim concerns a loan granted to a consumer (a natural person not acting in pursuit of his or her profession or business). Pursuant to the Dutch Act on Financial Supervision (Wet op het financieel toezicht,) (FSA) no party may offer credit in the Netherlands without a license granted for that purpose by the Authority for the Financial Markets. Such offering also includes managing of a loan or performing thereunder. In other words, in this instance the same rule applies to a bank and a non-bank entity. The FSA does not regulate the offering of loans to non-consumers. Furthermore, a non-bank entity must behave towards a borrower in accordance with the Dutch civil law concept of reasonableness and fairness. In considering what exactly this entails all the circumstances of the case must be taken into account. In the view of the Attorney General, this also includes the fact that a bank has assigned the claim to a non-bank. The duty of care applicable to a non-bank to which claims under loans originated by a bank have been assigned, is therefore not necessarily that different from the duty of care owed by a bank.
The Attorney General also notes that in cases where it might be held that, considering all circumstances of the case, specific duty of care obligations that were owed by a bank, are not owed by a non-bank to which that bank assigns its claims, such duties of care would in principle not pass to the non-bank assignee simply as a consequence of a mere assignment of the claims. Generally, these duties of care should be considered to be linked to the actual credit relationship with the borrower. In the case of a mere assignment of claims, the underlying credit relationship remains with the assignor. Therefore, if a selling bank would really wish to make sure that a non-bank buyer of its claims will be bound to the same duties of care as imposed on that bank in relation to the relevant claims and borrowers in all respects, it would have to transfer the credit relationship from which the relevant claims arise by means of a transfer of contract. A transfer of contract would require the consent of the relevant borrowers, unless such consent has been given in advance under the terms of the relevant loan. Alternatively, it could require the assignee to provide a contractual undertaking to the effect that the same duties of care are imposed on it.
Preliminary question 3
Does it make any difference to the answers to the previous questions whether or not a borrower has performed its obligations under the loan agreement in full and whether or not the bank has cancelled/accelerated (opzeggen) the relevant loan?
Answer: According to the Attorney General, the answers to questions (1) and (2) remain the same regardless of whether a borrower is in default under its loan agreement and whether or not the bank had cancelled/accelerated the relevant loan agreement. In considering the exact scope and nature of the duty of care and what this would entail under the given circumstances, the fact that a borrower has defaulted in performing its obligations under its loan will be taken into account, but this principle applies regardless of whether the lender is a bank or a non-bank.
Preliminary question 4
What rights can a borrower invoke vis-à-vis the transferring bank if the actions of the non-bank entity deviate from what could be expected of a bank on the basis of public law and duty of care applicable to a bank?
Answer: The Attorney General notes that a reply to this question is not necessary for the judgment of the Supreme Court in the case at hand because the transferring bank in question (Van Lanschot bank) is not a party to that dispute. However, the Attorney General nevertheless makes some general observations of interest. The Attorney General considers that the duty of care of a bank when selling and transferring loan receivables to a non-bank may entail that such bank should take a degree of care in selecting a buyer that is expected to comply with applicable standards of care and arguably also that the bank should include provisions in its loan sale documentation that impose an obligation on a buyer to act in accordance with such duties of care.
It is therefore expected that negotiations between sellers and buyers of non- and sub-performing bank loans will focus (even more) on provisions intended to ensure compliance with own duties of care by buyers, as well as passing on any duty of care that a seller might be considered to have and that would arguably not otherwise be passed on to a buyer, just to be on the safe side.